Экзамен зачет учебный год 2023 / SLC, Report on land registration. Vol 1

Part 21 The guarantee of title: (C) the mud or the money

21.

Introduction

21.1In Part 19 we discussed the way that the guarantee of title works under the 1979 Act. We noted that it takes two forms, which we dubbed "mud" and "money". In the first case, an error in the Register cannot be undone, and compensation is payable to the other party who suffers thereby. In the second case, an error in the Register can be undone, and here it is the person against whom it is rectified who receives compensation. We took the view that the title guarantee should continue, and that it was appropriate that in some cases it should be "mud" and in others "money". But we indicated that reform was needed as to the balance between the two. In the present part of the Report this is the issue we look at: given that the title guarantee applies, should it, in given types of case, take the form of mud or of money? We stress the words "given that the title guarantee applies". Thus as we have said in the previous part, we think that voidable titles should not be within the scheme of guaranteed title. And this part is limited to the mud/money choice: details of the two forms of title guarantee are discussed in Parts 22 and 23.

21.2The mud/money contrast is slightly misleading, because in fact in almost every case where the guarantee of title is engaged, both elements are involved. Suppose that Theseus is registered as owner of Greymains, including a boundary area that is within the Greymains title sheet but which should really have been in the title sheet of neighbouring Whitemains, which belongs to Rose. Possibility 1: the two title sheets are rectified so that the area in question is taken out of the Greymains title sheet and added to the Whitemains title sheet. Here Theseus will normally be entitled to compensation: money. The mud is Rose's. Possibility 2: there is no rectification. Theseus keeps the mud and Rose will normally be entitled to compensation. So whichever solution is adopted, both mud and money are involved. Still "mud" and "money" are a convenient shorthand. If a registered grantee keeps what the title sheet says, then that is title guarantee by way of "mud" and if the registered grantee does not keep it but is compensated instead, that is title guarantee by way of "money".

Immediate indefeasibility in the Torrens systems

21.3 The importance of the Torrens systems is such that a few words seem appropriate.1 To begin with, it was unclear whether the Torrens system, in any of its forms, gave protection only against Register error, or whether protection was also given against transactional error.2 In Gibbs v Messer,3 decided by the Privy Council in 1891 on appeal from the Australian state of Victoria, the idea that a good title might flow from a forged deed was

1 For a valuable recent discussion, see Pamela O’Connor, “Deferred and immediate indefeasibility: bijural ambiguity in registered land system titles” (2009) 13 EdinLR 194.

2 For this distinction see Part 17.

3 [1891] AC 248.

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rejected. In the advice, given by a Scottish Lord of Appeal, Lord Watson, the view was expressed that:4

"Those who deal, not with the registered proprietor, but with a forger who uses his name, do not transact on the faith of the register; and they cannot by registration of a forged deed acquire a valid title in their own person, although the fact of their being registered will enable them to pass a valid right to third parties who purchase from them in good faith and for onerous consideration."

21.4 Gibbs was, however, distinguished in 1967 in another Privy Council decision, Frazer v Walker,5 a New Zealand case. The result of the decision was to protect the acquirer against forgery and other transactional error. At first the decision in Frazer was the subject of heated debate.6 The matter was referred by the New Zealand Government to its Law Revision Committee, which concluded that:7

"it was divided on the intrinsic merit of the two alternatives, but that, in accordance with the principle of law reform that there must be a compelling reason for changing an established rule of law, it had reached the … conclusion that the present law as expounded in Frazer v Walker did not call for any alteration."

21.5Frazer v Walker represents what has come to be known as the doctrine of "immediate indefeasibility". The principle supported by Gibbs v Messer is, by contrast, known as "deferred indefeasibility". Immediate indefeasibility has come to be the dominant position in Torrens jurisdictions.8 But opposition to it continues, to some extent in Australasia9 and more so in Canada.10

21.6In Canada immediate indefeasibility has been questioned by Professor Mapp,11 an authority on title registration, and by the Joint Land Titles Committee for Alberta, British Columbia, Manitoba, Northwest Territories, Ontario, Saskatchewan and Yukon.12 During recent years some change has been triggered by the unwelcome growth of fraud, starting with the Lawrence case. A fraudster impersonated Ms Lawrence and mortgaged her Toronto home to a bank. The fraudster pocketed the loan moneys and vanished. The bank then

4 At 255.

5 [1967] AC 569.

6 Roy A Woodman, "The Torrens System in New South Wales: One Hundred Years of Indefeasibility of Title" (1970) 44 ALJ 96; Warrington Taylor, "Scotching Frazer v Walker" (1970) 44 ALJ 248; G W Hinde, "Indefeasibility of Title since Frazer v Walker", in G W Hinde (ed), The New Zealand Torrens System Centennial Essays (1971), p 33, 40-51.

7 Property Law and Equity Reform Committee, Report on the decision in Frazer v Walker (1977), para 21.

8 See eg Sir Anthony Mason, "Indefeasibility – Logic or Legend", in David Grinlinton (ed), Torrens in the Twentyfirst Century (2003), p 3; and Peter Blanchard, "Indefeasibility under the Torrens System in New Zealand", in David Grinlinton (ed), Torrens in the Twenty-first Century (2003), p 29. See also Breskvar v Wall (1971) 126 CLR 376.

9 Pamela O'Connor, "Registration of Title in England and Australia: A Theoretical and Comparative Analysis", in Elizabeth Cooke (ed), Modern Studies in Property Law vol II (2003), p 81; Law Reform Commission of Victoria, The Torrens Register Book (Report No 12, 1987), para 16. The New Zealand Law Commission have also considered whether immediate indefeasibility should be modified, or even abandoned: see New Zealand Law Commission, Review of the Land Transfer Act 1952 (2008), ch 2.

10And there are frequent attempts to circumvent indefeasibility, for instance through equity. See for example Matthew Harding, "Barnes v Addy claims and the indefeasibility of Torrens title" (2007) 31 Melbourne University Law Review 343; and Tang Hang Wu, "Beyond the Torrens mirror: a framework of the in personam exception to indefeasibility" (2008) 32 Melbourne University Law Review 672.

11Thomas W Mapp, Torrens' Elusive Title: Basic Legal Principles of an Efficient Torrens System (1978), paras 6.109 ff.

12Renovating the Foundation: Proposals for a Model Land Recording and Registration Act for the Provinces and Territories of Canada (1990), pp 25–26.

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sought to enforce the mortgage. When Ms Lawrence pointed out that the mortgage deed was a forgery the bank replied that it had acted in good faith and that since Ontario law operated on the basis of immediate indefeasibility it was entitled to enforce.13 The bank succeeded at first instance. There was public uproar. Ms Lawrence appealed, and the Court of Appeal allowed the appeal.14 The Ontario legislature then backed up this decision by amending the land registration legislation to give the principle of deferred indefeasibility a statutory basis.15 A similar case in British Columbia also resulted in a decision in favour of the defrauded owner.16

21.7In those Torrens jurisdictions – the majority - that have immediate indefeasibility, such indefeasibility is excluded if there is fraud on the part of the transferee. In most Torrens jurisdictions mere negligence does not undermine the title. As for possession, it is irrelevant. Had the facts of the Lawrence case happened in England and Wales or in Scotland, the bank's argument that its title was indefeasible would have been a non-runner because of the lack of possession.

21.8Where a person loses property as a result of the Torrens system, there is a right to compensation. That parallels the rule under the 1979 Act.17 Our new scheme also provides for compensation for those who lose rights as a result of the good faith acquisition by somebody else.18

21.9Finally, it is worth noting that the Torrens jurisdictions generally have not developed a system for compensating grantees for loss caused by transactional error. The reason is simple: such grantees normally stand in no need of such compensation, because of the doctrine of immediate indefeasibility. Thus whereas in Scotland, and in England and Wales, monetary compensation by the registration department can be payable either (i) to grantees where there is transactional error, or (ii) to those who are the victims of indefeasibility, in most Torrens jurisdictions the former is generally inapplicable.

England and Wales

21.10 The basic approach in England and Wales is similar to the approach in the 1979 Act, which is unsurprising since the latter was modelled on the former. The main difference is about discretion. English law often formulates private law rights by means of a default rule plus a judicial discretion to vary the default rule in particular cases. That type of approach is

13This would have left Ms Lawrence with a compensation claim against the Ontario Land Titles Assurance Fund. As we have mentioned, it is a characteristic of title registration systems in most of the English-speaking world that those who lose rights in this way are to be compensated by the registration department even if the latter has not been at fault. By contrast in most European title registration systems the registration department pays compensation only if the loss was caused by its fault. But it must be borne in mind that in those systems indefeasibility happens only on a deferred basis, so that it is harder for a true owner to stand in need of compensation than it is in most Torrens jurisdictions.

14Lawrence v Maple Trust Co (2007) 84 OR (3d) 94. An interview with the victim can be found at http://www.youtube.com/watch?v=KKXCoDT18tY. See further Reviczky v Meleknia (2008) 88 OR (3d) 699. Whether, before Lawrence, Ontario law embraced immediate or deferred indefeasibility seems to be a matter of controversy.

15The legislative vehicle for the amendments was the Ministry of Government Services Consumer Protection and Service Moderation Act 2006.

16Gill v Bucholtz 2009 BCCA 137.

171979 Act, s 12(1)(a).

18Draft Bill, s 51.

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adopted for the mud/money issue. The default rule is essentially the same as the rule in the 1979 Act, but there is a judicial discretion to vary it.19

The 1979 Act

21.11The 1979 Act, like the Torrens systems, confers protection on all grantees, thus taking no note of the distinction between Register error and transactional error. In that respect it differs from the German and most European title registration systems, which generally confer protection only against Register error.20 But whereas the Torrens systems generally protect all grantees by means of a "mud" guarantee, the 1979 Act protects some acquirers by mud and others by money. The rule is that an inaccuracy should not be rectified (ie indefeasibility) where to do so would be prejudicial to a proprietor in possession.21 In any other case the title guarantee takes the form of monetary compensation. In broad terms, that means that the title guarantee takes the form of the mud guarantee for those buying property22 (probably including those acquiring long leases23), and this applies regardless of whether the error is Register error or transactional error, but that for other parties (eg standard security holders) the title guarantee takes the form of monetary compensation. Another difference from the Torrens systems is that whereas they deny indefeasibility only in cases of fraud, the 1979 Act denies indefeasibility (and also monetary compensation) where there is "fraud or carelessness".24

21.12Both these points (that mud protection is limited to the proprietor in possession, and that the title guarantee is forfeited not merely in case of the grantee's fraud but also in case of the grantee's carelessness) were adopted from English law, with little consideration of the policy issues. There is no evidence that the Henry Committee, which sat from 1965 to 1969, was aware of Frazer v Walker (decided by the Privy Council in 1967) or of the controversy that it generated. The provision recommended by the Henry Committee was no more than a copy of the equivalent provision in the English legislation of 1925.25 When, after the Henry Committee had reported, that provision was found, south of the border, to be defective and was replaced, it was the replacement provision which was used in the 1979 Act.26 Whatever the reasons for its adoption, however, the solution of the 1979 Act offers a middle way between the unqualified rejection of protection for transactional error in the German system and its unqualified acceptance in Torrens.

21.13As originally introduced into Parliament, the Bill that became the 1979 Act went even further in following English law conferring a discretion exercisable by the Keeper or, as the

19Land Registration Act 2002, Sch 4, paras 2, 3 and 6.

20Thus it may be that Ontario and British Columbia (see above) are moving in a European direction.

211979 Act, s 9.

22Because such parties generally take possession. But there can be exceptions. An example is where X buys land and is registered as owner of a disputed boundary area. This boundary area is physically part of the neighbouring property and hence X does not take possession of it. Here X is "proprietor" of the boundary area (because registered as its owner) but is not "in possession". In such a case the inaccuracy can be rectified, ie X's title to the boundary area is not indefeasible.

23The reason for the doubt is that s 9 of the 1979 Act protects "proprietors in possession". A tenant does not own the land and so is not a proprietor. There is a view, on which we express no opinion, that all those who have a right in land are proprietors, on the basis that though they do not own the land they own their right.

241979 Act, s 9(3)(a)(iii) and s 12(3)(n).

25The Henry Report, p 48 provided that a proprietor in possession should be protected from rectification "unless such proprietor shall be a party or privy or shall have caused or substantially contributed by his act, neglect or default to the fraud, mistake or omission in consequence of which such rectification is sought". This was almost an exact copy of the Land Registration Act 1925, s 82(3)(a).

261979 Act, s 9(3)(a)(iii).

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case may be, by the courts. This would have allowed rectification to prejudice a proprietor in possession if "the circumstances of the case are such that it is unjust that the interests of the proprietor in possession be preferred to those of another person."27 This originated in the Henry Report.28 But the Law Society of Scotland feared that it "might open up the possibility of the exercise of an equitable jurisdiction which however appropriate in England would be an unwelcome addition to the law of Scotland"29 and as a result the provision was dropped.

The mud/money question

21.14Usually an acquirer prefers to keep the property. It may have a special value to the acquirer, and at all events the acquirer chose it and, unless there has been a change of mind, will wish to retain it. Further, the alternative of compensation has the potential for difficulty. A claim must be made to the Keeper. There may be a dispute as to quantum or even as to merits. At best there will be delay and at worst litigation. It may be a long time before a replacement property can be acquired, even assuming that a suitable replacement can be found. In short, compensation is likely to be seen as second-best: as with any form of indemnity, most people would prefer that the loss had not occurred in the first place. The relative unattractiveness of indemnity should not, however, be exaggerated. The property was not "truly" the acquirer's and yet the acquirer is fully compensated for its loss. The acquirer has only good faith as an argument and yet that good faith is handsomely rewarded. Further, indemnity is better than no indemnity – the position under the Sasine system or in the purchase of any property other than land. The discussion so far has assumed that the right in question is ownership. If it is another type of right, the factors involved may be rather different. For example, a standard security is a financial right, and monetary compensation should fully suffice.

21.15One of the core values of title registration systems is transactional facility. That means that it must be possible to buy property (or otherwise deal with it) with confidence, and that in turn means that a grantee should be secure against unknown third-party claims relating to the property. From that point of view a rule of immediate indefeasibility has a strong attraction. But it also faces two difficulties. First, it tends to give insufficient weight to the interests of the true owner; and secondly it results in insecurity of title for everyone, including the acquirer.

The first difficulty: the position of the true owner

21.16 To award the property to the acquirer is not a neutral act. If the acquirer becomes owner, then, necessarily, ownership is lost by someone else. It is a growing criticism30 of systems of registration of title that they tend to see matters only from the perspective of the acquirer and so overlook the position of the true owner, of the person at whose expense the acquirer is taking. Yet the balancing of the interests of those parties is, as Lord Rodger has expressed it, a "profound" issue of legal policy.31 The dilemma, he explains:

"is no less fundamental for being simple to state. A owns land and, for example, B forges A's signature on a disposition to C who purchases in good faith and for value.

27Land Registration (Scotland) Bill, cl 8(2)(a)(iv).

28Henry Report, p 48.

29As summarised by Lord McCluskey in the House of Lords. See Hansard HL, vol 398 (1979) col 1455.

30Especially in Canada: see above.

31Kaur v Singh 1999 SC 180 at 188.

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C registers his title. Should the law support the claim of A, the 'true' owner of the land, or the claim of C who has the registered title? If the law supports the claim of the 'true' owner, then it will provide for the register to be rectified by deleting C's name and substituting A's name. C will be left with a claim for indemnity from the Keeper for any loss which he suffers as a result of the destruction of his registered title. If, on the other hand, the law supports the claim of the registered proprietor, it will refuse A's claim for rectification and he will simply have to claim indemnity from the Keeper for his loss of the ownership of the land."

21.17 There is a tendency to assume, without argument, that the position of the acquirer – of C in the example – should always be preferred. Yet the true owner – A in the example - also has strong claims on the property. Not only was A first to register but A has not validly consented to the transfer. Under the general law, a careful distinction is maintained between deeds that are void – the case currently under consideration – and those that are voidable. In a voidable deed the granter gives consent, even if that consent might have been induced by unfair means. In void deeds there is no valid consent. As a result, ownership passes in the first case but not in the second, for it is a strong principle that a person is not to be deprived of property without consent. If, under registration of title, the acquirer under a void deed is not merely to be compensated, but to be awarded the property itself, the distinction between void and voidable is eroded, and with it the policy basis – on one view, a principle of fundamental importance – on which it rests. Of course, a true owner who loses the property is entitled to indemnity in turn, as Lord Rodger noted. But the relative disadvantages of compensation which were described earlier apply as much to the true owner as to the acquirer. The acquirer may want this particular property, but so may the true owner. Monetary compensation is likely to be a second-best solution for an acquirer, but equally it is likely to be a second-best solution for the true owner. If the true owner's connection with the property has been long and that of the acquirer short, it is likely to be of greater value to the former than to the latter.

The second difficulty: insecurity of title ("easy come, easy go")

21.18 To prefer the acquirer over the true owner is to prefer a system where acquisition of title is easy over one where it is more difficult. But what has been easily acquired may just as easily be lost. In other words, the very set of circumstances which allowed the acquisition of the property would, if repeated, lead to its loss. If C acquires A's property through the forgery of B, so E might now acquire C's property through the forgery of D. "Easy come", as Professor Mapp observed, leads inexorably to "easy go": 32

"A registered title cannot be indefeasible against errors occurring both before and after its creation; no legislature can work this miracle ... To whatever extent ... [a person] can acquire an interest from a predecessor through error, he is vulnerable to losing that interest to a successor through the same error repeated after his registration."

32 Thomas W Mapp, Torrens Elusive Title: Basic Legal Principles of an Efficient Torrens System (1978), paras 3.13 and 4.26.

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21.19 The conclusion that a Land Register title is less secure than a Sasine title is both uncomfortable and also unavoidable.33 As an English commentator has expressed the position: 34

"[D]eeds registration is a Rolls-Royce system, designed to offer absolute security of title. Title registration is a much more down-market system, where security comes from break-down insurance rather than good workmanship."35

21.20This is not an argument for abandoning the 1979 Act and returning to the Sasine system. But it is an argument for considering whether title under the 1979 Act is too easily acquired - and too easily lost again.

21.21Titles should be secure but at the same time easily acquired. There should, in other words, be both security of ownership and also facility of transfer, or, to use other words, static security and dynamic security.36 But, as just seen, these principles are irreconcilable and it is necessary either to choose between them or to arrive at a compromise under which security of ownership is sometimes preferred and sometimes facility of transfer. Traditional property law, naturally, opts for static security. The Sasine system therefore does likewise. In what must have seemed at the time a revolutionary change, the Torrens system threw up property law in favour of facility of transfer, creating in the process "a mile-wide exception to the principle nemo dat quod non habet".37 The English system of registration of title, and following it the Scottish system,38 proceeds more cautiously and adopts a compromise based mainly on who has possession. In our view a compromise is the best approach and is much to be preferred to the immediate indefeasibility adopted by a majority of the Torrens jurisdictions. The question is whether the compromise contained in the 1979 Act is capable of improvement. We think that it is.

The "proprietor in possession" test of the 1979 Act: some difficulties

21.22 At least three difficulties affect the "proprietor in possession" test of the 1979 Act. The first concerns a matter which is remote from the present discussion and may be disposed of quickly. The Act makes no distinction by type of error. Yet while possession has a valuable role to play in choosing between an acquirer and the "true" owner, it seems unhelpful in cases where the title to the property is not at issue. If, for example, the error is that a real burden was mistakenly omitted on first registration, the law must choose between (i) restoring the burden and compensating the acquirer for the lessening of the value of the property caused by the burden or (ii) extinguishing the burden, by its continued omission

33Strictly one should say less secure than the Sasine system formerly was, for the introduction of registration of title has left Sasine titles vulnerable on first registrations.

34Jean Howell, "Deeds Registration in England: a Complete Failure?" (1999) 58 CLJ 366, 391.

35There is perhaps an element of overstatement here. The "absolute security of title" is an absolute security of a title once it has been validly acquired. The problem in a deeds registration system is being sure that the title has been validly acquired in the first place.

36The contrasting concepts of static and dynamic security go back at least to René Demogue, Les notions fondamentales du droit privé (1911), ch 2 (la sécurité statique et la sécurité dynamique).

37Bruce Ziff, Principles of Property Law (4th edn, 2006), p 445.

38As was stated in Kaur v Singh 1999 SC 180 at 188G per Lord Rodger, "The [Reid] committee give us no glimpse of their thinking, but simply state that the dilemma should be resolved for Scotland by adopting the same rule as in England."

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from the Register, and compensating its (ex-)holder. Such a choice is not assisted by considering the state of possession.39

21.23The second difficulty is about self-help. The 1979 Act allocates property and indemnity by reference only to the current state of possession – almost an invitation to selfhelp. In Kaur v Singh40 a flat was owned by a married couple. While the wife was out of the country the husband sold the flat. His signature on the deed was genuine, but that of his wife was forged. The buyer was duly registered as owner, and took possession, in March 1996. In May 1996, on her return to Scotland, the true owner (to the extent of her half share) recovered possession by the services of a locksmith. In December 1997 the buyer did the same, thereby regaining the status of "proprietor in possession". This seesaw might have continued indefinitely had the wife not eventually decided to accept the loss of her home and to claim indemnity instead.41 Another seesaw case was Safeway Stores plc v Tesco Stores plc42 where, in a dispute over the ownership of a small, but commercially important, section of riverbed, one of the parties employed divers to place underwater marker posts, the response of the other party being to employ its own divers to remove them.43 In another example drawn to our attention, eventually resolved without litigation, the possession of a disputed part of a mutual boundary was asserted by the planting of flowers, contradicted by their removal at dead of night, and reasserted by the erection of a fence when the other party was on holiday.

21.24The use of possession as a way of achieving a compromise between the undoubted interests of the true owner and the undoubted interests of the acquirer is fundamentally a good one. What is unsatisfactory is that ownership should depend on the state of possession at the time when rectification happens to be sought. Nor is it clear precisely what that time is. Potential dates include the date (i) of application for rectification (ii) that litigation on the issue is initiated (iii) of decree in that litigation or (iv) of rectification being effected by an appropriate change in the Register. If, for example, the acquirer possesses at the time of the initial application and again at the time rectification is to be effected, but not in between, is that person a proprietor in possession such that rectification is barred? And must the Keeper send out staff to check the current state of possession every time it is proposed to change the Register? In Safeway Stores plc v Tesco Stores plc it was suggested that possession might be relevant "over an appropriate tract of time preceding" the date of application for registration,44 but this leaves much uncertain, including the length of the tract of time and the position where possession changes hands.

21.25Just as serious is the apparent incentive to take the law into one's own hands, by taking possession. The suggestion that the 1979 Act "seems to have revived the priority rules of the Stone Age" is no doubt an overstatement but it has an element of truth.45 If parties are sufficiently determined, self-help can in some cases become the arbiter of title. It is true that the problem may be soluble even under the present law through an action of spuilzie, for a person who is dispossessed without consent is, in general, entitled to be

39See also para 21.41 below.

401999 SC 180.

41Kaur v Singh (No 2) 2000 SLT 1323.

422004 SC 29.

43Whether possession of a riverbed can in fact validly be achieved by underwater marker posts is a point that does not need to be considered here.

44Safeway Stores plc v Tesco Stores plc 2004 SC 29 at 60 per Lord Hamilton.

45Commentary on Kaur v Singh at 1998 SCLR 863.

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restored to that possession.46 But to a person recently dispossessed litigation may be as unattractive as a further round of self-help.

Lack of notice in the current system

21.26There can be many ways in which a true owner is vulnerable to loss of property through the land registration system. We mention two here as examples. One is where property is conveyed by a forged deed. The other is where, on the first registration of a neighbouring property, an error is made about the line of the boundary and as a result some land is included by mistake in the title sheet of the neighbour. What is objectionable in such cases is not merely the loss of property. It is accepted that, in certain circumstances and for good reasons, it may be justifiable for property to be taken from a person involuntarily and given to someone else. Familiar examples in private law and public law respectively are positive prescription and compulsory purchase.47 Further, it is also accepted that facility of transfer might sometimes be just such a good reason. For if a system of simple and efficient conveyancing requires that, occasionally, the interests of a true owner be sacrificed to that of a good faith acquirer, then the loss to one person can be justified in the name of the greater good. The fundamental objection, therefore, is not so much the loss of property, regrettable as that is, but, rather, the manner in which it is lost. Under the 1979 Act property may be lost without notice.48 The true owner is not party to a forged disposition, or to the registration of the neighbouring property. Indeed, it is provided by the Land Registration Rules that the true owner is not to be notified if the acquirer's title is one which requires to be fortified by prescription.49 It is true that possession by the acquirer is itself notification. But this notification (ie by the fact of possession) is automatically too late, so it can never work. In the very act of taking possession, the acquirer assumes the mantle of "proprietor in possession" and so deprives the true owner of the possibility of getting the property back. Under the 1979 Act, possession and irrevocable loss of title are concurrent events.50

21.27Conversely, if possession is not taken, as may quite commonly occur in the second of the two situations mentioned above (a boundary area included in a neighbour's title), the true owner may continue to use the land for many years to come, unaware that it now belongs to someone else. But that is not an issue about indefeasibility but rather about the Midas touch.51

21.28The shortcomings of the 1979 Act in this area have become increasingly apparent. In a written submission, the Department of the Registers of Scotland emphasised to us the difficulties of cases of this kind:

46Reid, Property, paras 161-166; William M Gordon and Scott Wortley, Scottish Land Law (3rd edn, 2009), ch

47These are very different of course, in that the latter does, but the former does not, involve compensation. In the land registration system involuntary loss is normally compensated.

48By "loss" we here mean a combination of two aspects of the current legislation. There is the immediate loss caused by the Keeper's Midas touch (see Part 13). But on its own that does not amount to an unconditional loss because in some cases the loss can be undone, through rectification. The second aspect is the fact that rectification is normally incompetent as against a "proprietor in possession" (s 9 of the 1979 Act) so that the Midas effect is not only immediate but also (usually) irreversible.

492006 Rules, rule 18(2). Rule 21(2) was the equivalent in the 1980 Rules. This is a standard case, for if the neighbour's title to the area in question is bad then either (a) the Keeper will refuse registration or (b) will agree to register because the neighbour is in possession but on the footing of excluded indemnity, with the result that prescription will run. (On the last point see the Prescription and Limitation (Scotland) Act 1973, s 1(1)(b).)

50Unless, the "true" owner seeks to dispossess the acquirer by direct action, as in Kaur v Singh (see para 21.23 above). And of course there is the "fraud or carelessness" exception.

51For the Keeper's Midas touch see Part 13.

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"The effect of section 9 [of the 1979 Act] can be to disadvantage proprietors, thereby giving rise to perceived injustices. For example, the loss, to a proprietor whose interest is held on a title recorded in Sasines, of a right or area of land contained in their recorded deed, following an inaccuracy in the registration of a neighbouring interest in land in the Land Register. Proprietors disadvantaged in this way are understandably upset. Experience shows that they do not accept the explanation that the system of registration in Scotland forbids rectification of the Register except in the circumstances specified in section 9 … On these occasions, the remedy of indemnity, or of an ex gratia payment, is not always seen as equitable. In the eyes of an injured proprietor, the enforced loss of land, or of amenity, or of an incorporeal right, does not necessarily lend itself to reparation in monetary terms. The inability of the Keeper to rectify the register to restore the title sheet to the position that ought to have obtained but for his error is a major failing in the rectification provisions."

21.29 A true owner, deprived of land in a case on which representations have been made to us by a Member of Parliament, was more forthright still:

"I find it difficult to believe that a distinguished group could concoct such a piece of legislation. In fact this is a thief's charter duly protected by the State."

The need for notice

21.30The solution to this difficulty lies in notice. If property is to be lost, it should not be lost wholly by stealth. Instead the true owner should be given notice and, following such notice, should have a reasonable period in which to challenge the person now registered as proprietor. Only if and when that period has passed without a challenge should the acquirer have a title free from the possibility of rectification. Since possession is itself a powerful form of notice, what this boils down to is that the possession needs to have been for a certain period of time before indefeasibility can set in.

21.31Registration is also a form of notice, because the Register is public. Under current law it does not function sufficiently well because the true owner may lose title as soon as the wrongful registration happens. But in the new scheme that will never be the case. In the new scheme the true owner can lose the property, if at all, only on the second registration.52

Outline recommendation about Register error

21.32Our conclusion is that in the case of Register error a title should become indefeasible only if there is possession, and that it should be a reasonable period of possession. In DP 125 we asked whether the period should be a year, or two years, or some other period.53 From the responses we received no clear view emerged. We think that one year should suffice. That is enough time for a person to become aware of the problem, seek legal advice and, if necessary, raise an action in court.

21.33In DP 125 we took the view that the possession should be that of the seller.54 But as the result of views expressed by some respondents,55 in DP 128 we modified our position so

52X is owner. A forged disposition to Y is registered. Under current law X loses ownership immediately ("Midas effect"), and, assuming Y is in possession, irreversibly ("proprietor in possession" rule). Under the new scheme X remains owner. It is only if Y later dispones to Z (the "second registration") that X could lose ownership.

53DP 125, para 4.52 (proposal 7(e)).

54DP 125, para 4.52 (proposal 7(b)).

55Notably the Keeper of the Registers of Scotland and Donald B Reid.

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